Investing.com -- Moody’s Ratings has upgraded its ratings for Royal Caribbean (NYSE: RCL ) Cruises Ltd. The senior unsecured rating has been raised to Baa3 from Ba1, and the commercial paper rating has increased to P-3 from Not Prime. Moody’s also withdrew the Ba1 corporate family rating and the Ba1-PD probability of default rating, indicating a positive outlook for the cruise company.

The upgrade of the senior unsecured rating is a reflection of Royal Caribbean’s strong financial performance in the cruise industry, and its improved financial leverage, with its debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) standing at 3.1x as of March 31, 2025.

Moody’s expects the demand for cruises to continue growing, leading to increased revenue and earnings for Royal Caribbean. The company’s business profile is expected to strengthen, with improved credit metrics.

The ratings agency anticipates that Royal Caribbean will maintain its leading operating performance and that its debt/EBITDA ratio will fall below 3.0x in 2026, if not by the end of 2025. The company’s profit margins and EBITDA in 2024 were significantly higher than their respective levels in 2019.

Expanded offerings on board and at the company’s private land destinations, growth in the average lower berth days, and the number of private land destinations are expected to continue driving revenue and earnings growth in the coming years. The company’s sharp focus on cost management is also expected to contribute to growth in operating profit.

The Baa3 senior unsecured rating reflects the company’s strong business profile and leading credit metrics for the cruise sector. The company’s wholly-owned brands, Royal Caribbean, Celebrity Cruises, and Silversea, are expected to see growth in their respective customer bases as demand for cruise vacations increases in the coming years.

The company plans to expand its fleet and open additional onshore attractions, including Royal Beach Club Paradise Island, Royal Beach Club Cozumel, and Perfect Day Mexico in 2025, 2026, and 2027, respectively.

Moody’s expects Royal Caribbean to maintain good liquidity, with cash on hand of at least $250 million and strong annual operating cash flow of at least $5 billion. The company also has $6.35 billion of revolving credit commitments, half of which expires in October 2028 and half in October 2030.

The ratings could be upgraded further if the company sustains its strong operating performance and EBITDA margin while growing the fleet. Conversely, a downgrade could occur if the debt/EBITDA ratio rises above 3.5x or if funds from operations plus interest to interest fall below 5.0x.

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